Both provisions garnered strong bipartisan support in Thursday votes, providing welcome relief after weeks of heated wrangling. House Republicans had packaged the two measures in a single bill, roiling DFLers unwilling to tether tax cuts to aid for hard-hit mine workers.

Mark Dayton

The cut would come as a credit for most Minnesota employers if the state’s unemployment fund exceeds a federally recommended solvency level. It guarantees relief for businesses, who contribute to the fund quarterly based on headcount and payroll, when the labor force is healthiest.

In addition, the legislation includes a one-off $258 million rebate to be split among businesses this year. Minnesota employers are eligible for the tax relief and one-time payout unless they have a history of layoffs. Exceptions include seasonal outfits like road construction contractors and landscapers.

Thursday’s move further slices into the unemployment trust after legislators in 2013 agreed to reduce its balance over two years. Minnesota’s unemployment tax is a sticking point for business advocacy groups that say the state needs to go easier on businesses to stay competitive.

The Minnesota Chamber of Commerce, the state’s premier business advocacy organization, was at the table for talks this session over the unemployment tax reduction. The issue is part of the chamber’s broader push to chip away at business costs.

“We have advocated for making sure that we don’t put too many burdens on employers, because when you make it too expensive to business here, we can’t achieve a healthy economy for all Minnesotans,” said Cam Winton, the chamber’s energy and labor management policy director.

Tom Bakk

Though the unemployment fund dipped into the red during the recession, forcing it to borrow from the federal government, it has since rebounded. The state aims to keep it full enough to cushion widespread unemployment when another downturn hits.

At the end of the last year, the pool held roughly $1.66 billion – just more than the federal guideline, providing some room to justify a tax cut. The Minnesota Department of Employment and Economic Development expects the fund to finish March with about $1.4 billion. Some volatility is normal.

Sen. Lyle Koenen, DFL-Clara City, who pitched the tax cut, forecast the trust fund balance will have $1.8 billion at the end of 2016. The federal mandate would require just $1.62 billion in the pool, he said. That would shake out to a 10 percent difference — enough to trigger a credit that would reach businesses next year.

The law requires the state fund to beat the federal recommendation by 4 percent or more, providing some insulation for DEED, the state agency that administers unemployment benefits.

“Our overall goal was to ensure that we’re able to handle a recession and going forward we’re just going to be monitoring the trust fund for that,” O’Phelan said. “Our unemployment insurance system and tax structure is strong, and we are one of the best in the country at handling quickly those scenarios.”

It’s unclear whether business groups could push to further scale down unemployment taxes in the future. From the state chamber’s perspective, the combination of a permanent tax reduction and this year’s rebate packs a punch.

“We think this is prudent policy and we are thrilled to see it enacted and look forward to seeing how things play out in the future,” Winton said. “For now, we think this is a great step.”

Though tensions ultimately cooled, the benefits became a lightning-rod issue almost immediately after lawmakers returned to St. Paul for the 2016 session earlier this month.

At a discussion hosted by the chamber on the first day, Senate Majority Leader Tom Bakk, DFL-Virginia, railed against Republicans for trying to lump the tax cut with a proposal to extend Iron Range workers’ unemployment relief for another 26 weeks.

“If you guys all want to pick a fight at the Legislature and tie a big tax cut to families who don’t have any unemployment benefits … bring it on, because it’s not going to be a very good session for you,” Bakk said at the event, his voice rising.

The rift complicated tax cut talks, but eventually gave way to a two-bill framework widely hailed as a win.

Still, it took more than two weeks to get there, and with just 10 weeks total to hash out a series of major issues — including a tax bill, transportation funding and bonding — questions loom over how lawmakers will get it all done.

Gov. Mark Dayton, a DFLer, chided Republicans after he signed both bills Thursday night, and urged lawmakers to cooperate to settle differences.

“I support the reduction in employment taxes for Minnesota’s businesses, provided in the other bill I have signed today, although I disagree with the tactics used to pass it,” the governor said in a statement. “I hope today’s results will show the way to the resolution of future legislative differences.”